Growth Drivers and Resistors of Big Pharma Performance


Growth Drivers and Resistors of Big Pharma Performance Abstract
The performance of Big Pharma or the Top 10 pharmaceutical companies in the world by sales, is a key determinant of the world pharmaceutical market performance. The emerging key growth drivers and resistors of Big Pharma performance are: Drug discovery dilemmas, Regulatory conundrums and Demographic dynamics.

Today, the drug discovery process takes longer than ever, costs more than ever, but delivers less than ever. Drug safety concerns are at their peak. With Big Pharma accounting for a substantial chunk of the R&D spend and new drug launches, drug discovery becomes a significant area of concern. Critical transforming technologies and novel drug delivery systems threaten to revolutionise the industry, if viable and safe.

Regulatory issues like patent expiries, pricing pressures and the generic onslaught are severely testing Big Pharma margins and market shares. Tectonic demographic shifts, stress-filled but sedentary lifestyles, and unmet clinical needs are driving the demand for lifestyle and lifecycle drugs.

Big Pharma
The concept of Big Pharma assumes significance due to their growing domination of the global pharmaceutical market. Big Pharma in 2004 is equally divided between five European and five US based companies.

Growth Drivers and Resistors of Big Pharma Performance


Big Pharma Performance- 2004
Rank Big Pharma 1 2 3 4 5 6 7 8 9 10 Pfizer GSK SanofiAventis Merck J&J AstraZeneca Roche Novartis BMS Wyeth Origin US UK France US US UK Switzerland Switzerland US US World Market Share % 9 7 6 4 4 4 3 3 3 3 46 Growth % 17 10 69 2 13 14 47 15 4 4 17 R&D Spend % 17 17 17 17 15 18 15 18 16 18 17 (Average) Pharma Focus % 88 84 94 100 47 100 69 65 81 80 81 (Average)

Big Pharma Source- Company Annual Reports 2004

Traditionally, major US based Big Pharma like Merck, Pfizer, Johnson & Johnson, EliLilly and Wyeth have been healthcare focused, while the European Big Pharma with the exception of Glaxo, have been part of larger chemical, food or consumer conglomerates like Hoechst, Beecham, Bayer, Ciba and Sandoz.

Big Pharma’s focus on pharmaceuticals has increased from an average of 49% in 1983 to 64% in 1998 to 81% in 2004, an ominous sign for the smaller players. An increased focus and a flurry of mergers and acquisitions have doubled Big Pharma’s share of the world pharmaceutical market to almost fifty per cent, over the past ten years. This consolidation clearly outlines the growing importance and domination of Big Pharma.

Growth Drivers and Resistors of Big Pharma Performance


Big Pharma has also consistently outgrown the world pharmaceutical market with a double digit growth rate. In 2004, Big Pharma grew at more than double the industry growth, and if their almost 50% world market share is also considered, it clearly implies that the entire world pharmaceutical market growth, is driven by Big Pharma.

Growth Drivers and Resistors of Big Pharma performance
Growth drivers and resistors are key factors that stimulate growth and change, and hence affect performance.

Drug Discovery Dilemmas The R&D process entails million of dollars in R&D spend, through a long and complicated process, involving drug tests in the laboratory as well as on animals, healthy volunteers and patients. Out of 5000 molecules on which R&D is initiated, only 1 molecule is actually launched in the market, with the others being weeded out during the discovery process1.

Growth Drivers and Resistors of Big Pharma Performance


The World pharmaceutical R&D spend has trebled over the past 10 years, while newdrug discovery costs have doubled during the same period. With an increase in the new drug discovery period to almost 15 years2, the harvest period or the period during which the drug is marketed has reduced to only 8 to 10 years, assuming a patent period of 20 years. This reduced harvest period can severely hamper margins on successful drugs.

Big Pharma markets 75 per cent of all new drugs approved and accounts for 66 per cent of the total R&D spend. But, the last couple of years has seen fewer new molecules being approved by the USFDA. Entirely new class of molecules or significant advances are not forthcoming except for a few, in the last decade. Moreover, post launch only 30 % drugs recover costs3. Considering the above factors, R&D productivity affects Big Pharma performance significantly.

Despite the stringent drug discovery and approval process, there has been a glaring increase in the number of drugs banned, withdrawn or recalled in the past few years. Even drugs for innocuous indications like common cold have been banned as they have been found to lead to haemorrhagic stroke. The impact of such recalls on Big Pharma is tremendous in terms of profits, revenue loss, opportunity loss and patient litigation costs. However the breach of trust felt by patients and physicians who have consumed or prescribed such drugs in good faith for long years, is irreparable and beyond measurement.

Growth Drivers and Resistors of Big Pharma Performance Regulatory Conundrums


Patents help Big Pharma protect their molecule franchises for twenty years. Successful molecules result in huge sustained cash flows, which can be extremely profitable and help shore up existing products as well as fuel future projects.

Big Pharma performance is severely impacted by patent expiries to their prestigious molecules. Out of the total patent expiries between 2002 and 2007, 66% of the molecules will be from Big Pharma portfolios, which translates to a 78% share of the total revenue loss that will accrue due to patent expiry, at today’s sales value.

These are only the obvious financial implications, but by factoring in barren pipelines, impact of drug recalls and the uncertainty over USFDA approvals, the total implications for Big Pharma transcend any appraisal index.

The advent of the generic players, post patent-expiry, can wreak havoc with revenue streams. Generic impacts have caused sales erosion, even to the extent of 80 % of sales within one year of patent expiry. Such a sales void can be extremely arduous to compensate, even for Big Pharma.

In 2004, generic drug approvals in the US were more than 10 times the number of new branded-drug approvals. Growth in generics outpaced that of branded drugs 3:1 due to sheer affordability. Generic players have also become smarter and swifter at attacking vulnerable Big Pharma franchises, even before expected patent expiry periods.

Growth Drivers and Resistors of Big Pharma Performance The average cost of a generic drug is 20 % of the cost of an average branded


prescribed drug, in the world’s largest market, the US4. Prohibitive drug costs are ensuring a perceptible shift towards affordable drugs, from governments, medical Insurance companies and powerful patient lobbies, an ominous sign for Big Pharma and a great opportunity for quality players from developing countries. .

Demographic Dynamics World wide, the increased life expectancy is a result of better nutrition, effective medicines and improving healthcare facilities. People above 60 years of age, are growing at thrice the average world population growth rate. The frenetic pace of life, stressful and sedentary lifestyles coupled with junk food and irregular eating habits, are triggering worldwide demand for a variety of chronic (long term) therapies like mental health, cardiovascular, diabetes and lifestyle drugs.

The age group vulnerable to such maladies has reduced from 50+ years in the 1980s to to 30+ years today5. Serious diseases are being contracted early, but people are living longer, and hence the total treatment periods for serious disorders have trebled from 10 years in the 1980s to 30 years today6. This prolonged drug usage ends up causing newer side effects, as drugs are being consumed for periods much greater than what the drugs may have been initially tested for.

The growing number of the elderly patients is ensuring a higher incidence of geriatric diseases like Alzheimers, urinary incontinence, rare cancers and Parkinsonism.

Growth Drivers and Resistors of Big Pharma Performance


A rich and image conscious but aging society, that is prepared to fork out money to slow down the natural aging process, is propelling demand in the price insensitive lifestyle segment. Drugs that improve mental agility, reduce weight and rejuvenate sexual function would certainly emerge as future blockbusters.

These tectonic demographic shifts have resulted in a boom for chronic therapies, where Big Pharma is well entrenched and focused on. The Top 10 therapy areas (TA) account for 72 % of the world pharmaceutical market value and are the principal growth drivers. Big Pharma accounts for more than 50 % share of all the major therapy areas with brand leadership in the Top 10 therapy areas.

Over the next 5 years, as populations age and/or become westernised, mental health, obesity, diabetes, cancer, metabolism and heart disease segments would drive growth.

As Big Pharma remains a major player in the therapy areas estimated to be significant by 2010, their continued presence and competence in these segments could be their significant future growth driver.

Growth Drivers and Resistors of Big Pharma Performance Conclusion


As Big Pharma domination of the world pharmaceutical market increases, the key dynamics affecting Big Pharma performance assume importance. Growth drivers like demographic dynamics, where Big Pharma enjoys significant presence, need to be harnessed, with an eye on the future. Current growth resistors like R&D productivity, new drug output and patent expiry management, all earlier inherent Big Pharma strengths, need to be leveraged effectively. Focus areas would be addressing unmet clinical needs, value pricing and safe medicines to win back patient and physician trust.

Full Text Word Count - 1560 words Key Words- Big Pharma, Performance, Growth Drivers, Growth Resistors Document Type- Research paper Geographic Terms- World Pharmaceutical market

Growth Drivers and Resistors of Big Pharma Performance


About the Author
Amit Rangnekar is pursuing a PhD in Business Strategy from Narsee Monjee Institute of Management Studies (NMIMS), Mumbai, where he is also a visiting faculty in Marketing. Equipped with a Masters in Marketing Management from Mumbai University and 15 years of progressively responsible pharmaceutical industry experience, his research interests revolve around the key dynamics and demographics, affecting pharmaceutical strategy and performance. Email-

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